Just over a month after the collapse of Health House International’s (ASX: HHI) proposed merger with Zelira Therapeutics (ASX: ZLD), cannabidiol (CBD) innovator Creso Pharma (ASX: CPH) has announced the signing of a non-binding term sheet to acquire the medicinal cannabis distributor in an all-scrip deal valued at $4.63 million.
The proposed transaction, which is subject to the completion of satisfactory due diligence on Health House, is expected to substantially increase Sydney-based Creso Pharma’s revenue profile and open up multiple cross-selling opportunities to help leverage its product portfolio.
Creso CEO William Lay said the proposed acquisition had several potential benefits and would result in the business strengthening its global distribution capabilities and unlocking new markets across the UK, Europe and Australia.
“The Company intends to undertake due diligence on Health House’s operations immediately and explore the potential to leverage the group’s existing relationships for Creso Pharma’s own product ranges,” he said.
“Further, the Company will investigate other potential opportunities, including HHI’s existing EU-GMP product manufacturing capabilities and how these can further benefit Mernova, SSH and Creso Switzerland as we push to establish a presence in Europe and the UK.
“We look forward to progressing work towards implementing the scheme and will provide ongoing updates as due diligence requirements are met and additional opportunities materialise.”
Health House is an international distributor of medicinal cannabis, which holds several strategic licenses to store, distribute, import, export and sale of controlled drugs and is well positioned with an early mover advantage in the UK and European medicinal cannabis markets.
Creso, which looks to bring pharmaceutical expertise and methodological rigour to the cannabis world, develops cannabis and hemp-derived therapeutic, nutraceutical, and lifestyle products.
Under the proposed scheme, Creso will issue approximately one share for every two in Health House – providing Health House shareholders with a roughly 7.3 per cent interest in the merged entity. Creso shareholders will own the remaining 92.7 per cent.
The overall valuation represents a 67 per cent premium on Health House’s market capitalisation before its voluntary suspension.
In addition, for every four shares issued to Health House shareholders by Creso, HHI shareholders will also receive one free option at an exercise price of $0.08 which will expire four years from issue.
Health House released its fourth quarter results last Friday, confirming it had generated more than $4 million in cash receipts, with annual cash receipts increasing by 88 per cent to $15.2 million during FY22.
“Health House is also excited by the prospect of joining the Creso group,” Health House International CEO David Attwood said after delivering the results.
“Should it proceed, the proposed merger of Health House with Creso would create an extended global organisation with strong medicinal cannabis production and distribution capabilities, giving shareholders exposure to cannabis markets across three continents, including the global leader, North America.”
Creso has been provided three weeks to complete due diligence and establish whether an acceptable binding transaction can be agreed upon. The deal is scheduled to be finalised in November if shareholder and court approval is also obtained.
The target's board has indicated its intention to unanimously recommend that HHI shareholders vote in favour of the scheme.
Should the proposed deal go ahead, Creso has confirmed it will immediately seek to significantly reduce costs to fast-track Health House to profitability. This will include the removal of all corporate overheads and reducing headcount, sales, manufacturing, and distribution costs.
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